Decision relative to the petition of Seacoast Financial Services Corp., New Bedford, Massachusetts to acquire Bay State Bancorp Inc., Brookline, Massachusetts
By the Division of Banks
Seacoast Financial Services Corporation ("Seacoast" or the "Petitioner"), New Bedford, Massachusetts has petitioned the Board of Bank Incorporation ("the Board") pursuant to Massachusetts General Laws chapter 167A, section 2 and 4 to acquire Bay State Bancorp, Inc., ("Baystate"), Brookline, Massachusetts and its subsidiary bank, Bay State Federal Savings Bank ("Bay State Federal"), also located in Brookline. Petitioner's application before the Board is part of a multi-step transaction. A subsequent merger of Bay State with and into one of Petitioner's banking subsidiaries pursuant to an Agreement and Plan of Merger dated December 19, 2002, is before the Division of Banks.
As directed by the Board, notice of the application was published and posted and a public hearing was scheduled, thereby affording an opportunity for interested parties to attend or submit comments. Other standard procedures for informing the public of this matter before the Board were implemented. The public hearing was held on May 2, 2003. Representatives of the Petitioner offered testimony and responded to questions from the Board. A representative of Baystate also offered testimony. Following the hearing, the public comment period remained open so that interested parties could submit any additional comments. The public comment period closed on May 9, 2003.
Based in New Bedford, Massachusetts, Seacoast is a bank holding company with $3.7 billion in total consolidated assets at December 31, 2002. It is the holding company for two Massachusetts chartered banks, Compass Bank for Savings ("Compass Bank"), New Bedford, Massachusetts, and Nantucket Bank, Nantucket, Massachusetts. The deposits of these banks are insured through the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Additionally, as Massachusetts chartered savings banks, their deposits in excess of the FDIC coverage limits are insured through the Depositors Insurance Fund (the "DIF"), established by Chapter 43 of the Acts of 1934. Compass Bank maintains approximately forty branch offices located throughout Southeastern Massachusetts, while Nantucket Bank operates three branch offices on the island of Nantucket.
Bay State is a Delaware corporation and a registered savings and loan holding company under the Home Owners' Loan Act, (12 U.S.C. ยง 1467a). Its corporate offices are located in Brookline, Massachusetts. At December 31, 2002, it had consolidated assets of $596.9 million. Bay State's primary activity is as a holding company for Bay State Federal, a federally-chartered savings bank. Although, as a federally chartered savings bank, Bay State Federal's deposits are insured through the Savings Association Insurance Fund administered by the FDIC, its excess deposits are not currently insured. It operates six branch offices located in Boston, Brookline, Dedham, Norwood, Westwood, and Walpole.
Petitioner proposes to accomplish this acquisition in a two-step merger. First, Seacoast would establish Seacoast Merger Subsidiary, Inc., ("Merger Sub"). The Merger Sub would merge with and into Bay State. Thereupon, Bay State would be merged with and into Seacoast. Following the merger of holding companies, and upon the approval of the Division of Banks, Bay State Federal will be merged into Compass Bank. If approved, these transactions will result in the branches and assets of Bay State Federal becoming the branches and assets of Seacoast, and Bay State Federal and the Merger Sub will cease to exist.
Prior to approving an application under chapter 167A, the Board must have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that the Petitioner has arranged to participate in the MHPF's various affordable housing loan programs. In a letter dated May 14, 2003, MHPF notified the Board that satisfactory arrangements had been made for this transaction.
The Board's review of this transaction focuses on the applicable statutory and administrative criteria which include, among other things, whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage will be promoted. In determining whether the public convenience and advantage are promoted by the transaction, the Board considers, among other things, whether there has been a showing of "net new benefits." Net new benefits are defined as initial capital investments, job creation plans, consumer and business services, commitment to maintain and open branch offices within a bank's delineated local community, and such other matters as the Board may deem necessary or advisable. The Board also considers the banks record of performance under the Community Reinvestment Act ("CRA") and any relevant testimony received at the public hearing or submitted during the open comment period.
On the issue of whether competition will be unreasonably affected by the proposed transaction, the Board considers, but does not rely exclusively on, the various indices used by federal agencies in measuring competition in a given market. In this case, the federal standards indicate the proposed transaction will not result in undue concentration of banking resources in the relevant banking markets. However, the Board further considers the competitive effect of the proposed transaction in light of its impact on the citizens, communities, and banking structure of the Commonwealth on a community by community basis. In this transaction, the two entities operate primarily in separate banking markets. In the only banking market in which both CompassBank and Bay State Federal operate, they maintain a market share of .19% and .27%, respectively. Upon careful review of the competition issue, the Board concludes that the transaction will not unreasonably interfere with banking competition in the Commonwealth. Rather, the area served by Bay State Federal will continue to have access to a variety of competitive products and services, offered by a number of diverse banks and financial institutions.
Petitioner submitted a variety of materials relating to the public convenience and advantage it asserts would result from the proposed transaction. As a general matter, it explains that the acquisition of Bay State is consistent with its strategic plan and would represent a natural geographic expansion of its current market area. Such geographic compatibility, Petitioner notes, will not require the closing of any branch offices, and will enable it to retain most of Bay State's employees. Seacoast also maintains that, as a result of the acquisition, it will achieve significant cost savings, revenue enhancements, and operating synergies. The cost savings will be primarily derived, Petitioner maintains, from the integration of back office functions and associated personnel reductions, as well as through reductions in Bay State's executive officer staff.
Seacoast further asserts that the acquisition will benefit the customers and communities of both Bay State Federal and CompassBank. It argues that the proposed transaction would provide customers of CompassBank and Bay State Federal with greater banking convenience through an expanded branch office and ATM network. This expanded network would be of particularly benefit to Bay State customers, Petitioner maintains, as it would significantly increase the locations at which they may conduct their financial affairs. Petitioner notes that the customers of both banks will ultimately have access to 46 full service banking offices, as well as ATMs, located within a larger geographic area.
The Petitioner notes that, if the transaction is approved, the deposits of Bay State Federal that are in excess of the FDIC limits will be insured by the DIF, a benefit not available to the customers of a federal savings bank. Bay State Federal customers will also benefit from the larger array of products and services offered by CompassBank, Petitioner asserts, including several not currently available to Bay State Federal customers. It notes that, as a consequence of the acquisition, such customers will be served by a Call Center providing account and product information Monday through Saturday. Petitioner points out that Bay State customers will have access to a greater variety of checking products, as well as no fee debit and ATM card transactions; high net worth customers will have access to investment services through an affiliated money management firm. Bay State's commercial customers, Petitioner asserts, will benefit from a variety of web-based account management and business tools. Business customers will also benefit, Petitioner maintains, from the increased lending limits associated with CompassBank's significantly larger size.
The Petitioner maintains that, like Bay State, it has a strong commitment to serving the needs of the communities it serves. It advises that the Bay State Federal Savings Charitable Foundation will continue to operate after the acquisition, and will continue to provide funding to various non-profit organizations in the Bay State community. More generally, Petitioner asserts that these communities will benefit from its greater resources, noting particularly its many programs designed to meet the needs of low and moderate income persons.
Based on all of the material submitted by the Petitioner and testimony at the hearing, the record demonstrates that, if the proposed transaction is approved, Bay State Federal customers will have expanded access to banking venues and services. The Board further finds that Petitioner's existing customers will be benefited by its expansion into the Boston Banking Market. Finally, the Board finds that Petitioner's various programs designed to address community needs will benefit the Bay State Federal community. Based on all of these factors, the Board's review weighs in favor of the finding that the public convenience and advantage will be promoted. The Board further concludes that the criteria for net new benefits has been established.
The Board's review of this transaction includes an assessment of the subsidiary banks' performance under the CRA. Such assessment for a state-chartered bank involves examination by Division of Bank personnel, as well as an analysis of the legitimate concerns raised by the community and the bank's response to those concerns. For other institutions, the Board reviews the descriptive rating and evaluation by the applicable federal or state bank regulatory agency. Here, the Board obtained and reviewed the relevant evaluations for CompassBank, Nantucket Bank, and Bay State Federal. In the most recent CRA examinations of CompassBank and Nantucket Bank, both performed by the FDIC, each bank received a "Satisfactory" rating. The most recent examination of Bay State Federal, conducted by the Office of Thrift Supervision, resulted in a "Satisfactory" rating. Based on its review of these evaluations, the Board concludes that the banks involved in this transaction are adequately meeting the credit needs of their respective communities.
As part of its inquiry, the Board reviews the financial structure, tax consequences, and the operational aspects of the transaction. The Board has reviewed the consolidated financial statements of the parties and the details of the proposed transaction, and is satisfied with the Petitioner's capital ratios and projections. Information regarding the tax consequences of the proposed transaction was provided by Petitioner and considered by the Board. Finally, the Board is satisfied that Petitioner has the operational and managerial resources required to ensure a smooth transition.
Conclusion
Based on the record of this matter and considered in light of all relevant statutory and administrative requirements, the Board concludes that the proposed transaction will not have a significant impact on competition among banking institutions in the Commonwealth and will promote the public convenience and advantage. Specifically, the Board finds that the transaction will benefit the customers of Bay State Federal, and further finds that the banks involved in this transaction have a satisfactory record of performance under the CRA. In accordance with these findings and pursuant to the statutory authority cited herein, the Board approves the application and authorizes Seacoast Financial Services Corporation to acquire up to 100% of the stock of Bay State Bancorp, Inc., and Bay State Federal Savings Bank.
The approval granted herein is subject to the condition that all related transactions are completed within one year of the date of this Decision.
| Thomas J. Curry Commissioner of Banks | |
| Alan L. LeBovidge Commissioner of Revenue | Board |
| Timothy P. Cahill Treasurer and Receiver General | |
| May 27, 2003 Date |